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gar1976 · 07-01-2004, 10:06 PM

Cash flow is king. A few warnings:

Restaurants have a HUGE failure rate, especially with no experience in it. Have her take a job as an assistant manager for a while, or keep the current manager on to run the place until she gets the hang of it.

Also, with retaurants, the income on the tax return is vastly understated, in order to avoid paying taxes and stay in business (yes, the margins are that tight). Anywhere from 20% to a "legit" restaurant to 50% for the more aggressive ones.

Which leads to.....

How much to pay. Typically, business are worth 5 times the EBITDA (earnings before interest, taxes, and depreciaton/amortization). If the restaurant owner tells you that "wink wink, we don't report all income" that leads to some issues. One - how much is he not reporting? You'll never know for sure, and you could be getting seriously screwed over. and two - if the employees catch you turning off the till and pocketing money, it won't be long before they do it.

Gas stations are very tight as well. Some inside info for y'all - when gas prices go up, the margins cleared by the stations declines, as they are slow to pass on price increases (although it might not seem like it). And when the gas prices go down, the margins typically increase as they are slow to pass on price drops as well. You really need a few of these to make good money with economy of scale. Typical margins on retail petroleum range from 10 - 17%. Most of the profit is made on the retail stores themselves, from the beer/smokes sales and other sundry goods.

Last pointer - get everything in WRITING, no matter how trivial or how charming the seller might be. Have it signed by both parties, and both parties keep a copy.

You'll need three good professionals - an attorney, accountant, and IT person.

Good luck, make sure you keep us posted on how it goes.

07-01-2004, 10:06 PM	#2 (permalink)
gar1976 Custom User Title Location: Lurking. Under the desk.	Cash flow is king. A few warnings: Restaurants have a HUGE failure rate, especially with no experience in it. Have her take a job as an assistant manager for a while, or keep the current manager on to run the place until she gets the hang of it. Also, with retaurants, the income on the tax return is vastly understated, in order to avoid paying taxes and stay in business (yes, the margins are that tight). Anywhere from 20% to a "legit" restaurant to 50% for the more aggressive ones. Which leads to..... How much to pay. Typically, business are worth 5 times the EBITDA (earnings before interest, taxes, and depreciaton/amortization). If the restaurant owner tells you that "wink wink, we don't report all income" that leads to some issues. One - how much is he not reporting? You'll never know for sure, and you could be getting seriously screwed over. and two - if the employees catch you turning off the till and pocketing money, it won't be long before they do it. Gas stations are very tight as well. Some inside info for y'all - when gas prices go up, the margins cleared by the stations declines, as they are slow to pass on price increases (although it might not seem like it). And when the gas prices go down, the margins typically increase as they are slow to pass on price drops as well. You really need a few of these to make good money with economy of scale. Typical margins on retail petroleum range from 10 - 17%. Most of the profit is made on the retail stores themselves, from the beer/smokes sales and other sundry goods. Last pointer - get everything in WRITING, no matter how trivial or how charming the seller might be. Have it signed by both parties, and both parties keep a copy. You'll need three good professionals - an attorney, accountant, and IT person. Good luck, make sure you keep us posted on how it goes.